The wait is finally over! Tonight the Department of Labor (DOL) announced that it is releasing the final rule tomorrow, May 17, 2016, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees” which will mandate the new minimum salary level to be $913/wk or $47,476 per year. The DOL’s Fact Sheet was released tonight, along with a wealth of information that is available such as Q&A, Comparison Table of the proposed rule and final rule, a Small Entity Compliance Guide, a Guidance for Private Employers, and many others. Commonly referred to as the “white collar exemption”, the Fair Labor Standards Act (FLSA) provides that all employees subject to the FLSA are entitled to overtime, unless they are otherwise exempt. The actual rule was not released (go figure), so I’ll certainly post an update tomorrow (probably when you are reading this anyway as I’m having my wage and hour geek-out tonight). Although, according to one of the fact sheets, the Final Rule should be posted here: dol.gov/whd/overtime/final2016.
In order to exclude an employee from minimum wage and overtime requirements, three thresholds must be met: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work (the “salary basis test”); (2) the employee’s salary must be a minimum amount (the “salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative or professional duties as defined by the FLSA (the “duties test”). Neither the salary level test nor the salary basis test applies to outside sales (I stress outside). The Rule does not change the duties test.
Increased Salary Level & 3 Year Automatic Updates
As I wrote about in my earlier post when the rule was in the approval phase, the current threshold for executive, administrative or professional employees is that the employee must be paid a salary of at least $455/week ($23,660/year). The significant change is that this base threshold is now increased to $913/week ($47,476/year) effective December 1, 2016. For Computer-related employees, they may be paid the $913/wk or at least $27.63/hr. The threshold for “highly compensated employees” (these folks do not need to meet the duties test because it is presumed they will meet it since they are highly paid) is increased from $100,000/year to $134,004/year effective December 1, 2016. Notably, unlike before (the previous thresholds were set in 2004), the new rule provides that the salary and compensation thresholds will be automatically updated every three (3) years, the amounts of which will be posted in the Federal Register at least 150 days prior to their effective date.
Also, keep in mind that there are, as always, quirks and nuances to the new rule and this blog is just a general overview of what’s to come. For example, employees may be paid on a “fee basis” rather than a “salary basis”. In this way, the employee is paid an agreed sum for a single job, no matter how long it takes. However, to determine if the fee payment meets the threshold, you consider the time worked on the job and determine if that payment is at a rate that would equal at least $913/week if the employee worked 40 hours. Thus, a computer programmer is paid $800 to fix an app and takes 10 hours to do so, this meets the test as $800/10=$80/hr x 40 = $3,200 (much more than $913).
Don’t Forget About the Duties Test – the Employee Must Be “White Collar”
Regardless of an employee’s salary, an employee may make more than the threshold amount and still not qualify for the exemption.